Operational review – Glass

Nampak Glass is the smaller of the two container glass manufacturers in South Africa and has a market share of approximately 25%. We operate three furnaces at our site southeast of Johannesburg. With installed capacity of 285 000 tonnes, our bottles make up approximately 18% of the beer sector’s volumes, 25% of flavoured alcoholic beverages, 15% of wine and 67% of the spirits market.

Glass packaging collected for recycling in South Africa (% of tonnes consumed)

Source: Packaging SA. Latest data.

Key developments
  • Significantly improved operational efficiencies
  • Turned around business performance and profitability
  • Grew the wine market in partnership with Verallia, a leading French wine bottle producer
2016   2015   %change  
Key natural capital inputs:
Energy use (GJ) 2 137 609   2 022 160   6  
Limestone(t) 36 600   33 657   9  
Silica sand(t) 1 33 139   120 657   10  
Soda ash (t) 39 312   35 077   12  
Outputs affecting natural capital
Emissions intensity (t/CO2e/Rm revenue 145.15   211.80   (31)
Financial capital:
Revenue (R million) 1 323   877   51  
Trading profit (R million) 105   (81) >100  
Trading margin (%) 7.9   (9.2) -  
Human capital:
Employees 435   402   8  
LTIFR 0.79   2.01   Improved  
South Africa

Nampak Glass recovered well in 2016, recording improved operational efficiencies, increased production and sales volumes and consequently a turnaround in profitability. We reported a better safety performance and continued use of waste glass, or cullet, as an important component of our raw material input.

Supported by demand from the wine and flavoured alcoholic beverages (FABS) sectors, the South African glass market started to pick up after a number of years of decline, which had primarily been the result of the substitution of glass in the carbonated soft drink (CSD) market with plastics. The glass pack share in the beer segment stabilised and was still dominated by the 750ml returnable bottle. The market for FABS – mainly cider – continued to grow, with glass remaining the primary pack for this sector.

Nampak Glass’s production volumes increased by 19%, supporting the increased sales and also building stock to comfortable levels. We completed our stock build to an acceptable 90 days. We reported trading profit of R105 million, from a trading loss of R81 million in 2015. The trading margin was 7.9% (2015: (9.2%)), helped by the cost benefits of efficiency improvements and general improved cost control.

In line with our strategic imperative to improve business performance by buying, making and selling better, we oversaw a number of interventions in processes, systems and in the plant in the year. These addressed many of the technical concerns recently experienced across our three furnaces and resulted in a return of the furnace efficiencies to acceptable levels.

Apart from upgrades in the bottle-forming process, we implemented new software systems and processes in the forecasting and planning arena as well as in bottle design and forming simulation. This assisted in reducing job and process changes by nearly 30%, to reduce the overall level of complexity in the plant and to ensure that the range of products we produced was better aligned to our production capability.

As a result, production was stable, safe and reliable, and feedback from the market on quality and services was extremely positive.

The optimisation and increase in the use of cullet is a major focus area. This is in addition to numerous incremental energy-saving initiatives, including a lighting optimisation project that reduced our electrical energy requirements by around 1 megawatt. We also worked on a number of water-saving initiatives, studying the feasibility of becoming a zero-effluent-discharge plant by increased recycling of process water.

We are in the process of commissioning new cullet-sorting technology that will enable cullet to be colour sorted to a much finer level, facilitating an increase in the usage of mixed cullet that we procure from glass recyclers. We continued to participate in The Glass Recycling Company (TGRC), which is a voluntary industry initiative supported by glass packaging manufacturers and the majority of food and beverage brand owners in South Africa. It is funded exclusively by the levies paid by these stakeholders. TGRC is well positioned to submit industry waste management plans in response to proposed new legislative requirements. In 2015, 41% of all glass packaging consumed in South Africa was collected for recycling.

We reported a vastly improved safety performance, with LTIFR reducing to 0.79 from 2.01 in 2015. We consider the wine market in South Africa a major growth sector where Nampak is underrepresented. To ensure a more comprehensive offering to this market, in the year we entered into a sales and distribution agreement with Verallia, a major French wine bottle producer. Nampak now sells Verallia bottles in South Africa that complement our offering, and are of a size and specification not manufactured locally.

We continued to make use of the services of Nampak Research and Development, which constitute a key competitive advantage, offering our customers the necessary support when designing new products, or investigating the cause of any contamination their customers may experience. In the year we retained certification of our glass operations for environmental and energy management standards, as well as those for food safety.

Looking ahead

Following significant advances in 2016, Nampak Glass now has an acceptable level of stock, and our service and quality to the market has significantly improved. A lack of consumer demand and confidence means that the outlook for the South African glass market remains subdued.

We are working to increase our sales to the Cape wine sector, where demand for our products is rising off a low base and is being supported by greater bottled wine exports to the United Kingdom and Europe.

In June 2016, the Southern African Customs Union and the European Union signed an agreement which will allow South Africa to export 110 million litres of wine to Europe a year, more than double the previous duty-free quota of 48 million litres. Initially, 70% of the quota will be directed to packaged wines, increasing in due course.

We also see opportunity to grow our exports of glass products to the Rest of Africa. This is aligned to our strategic imperative to sensibly manage and grow our presence in current jurisdictions by building a market base through exports from South Africa.

Rest of Africa

We continue to see medium-term opportunity to invest in glass-making facilities in the Rest of Africa. The three most attractive markets for potential investment are Nigeria, Ethiopia and Angola. We are currently continuing with feasibility studies as we are confident in the long-term growth opportunities, but are being circumspect as the current macro-economic environment in these countries remains unstable. This prevents any such investments in the near term, and any decisions will only be taken once conditions improve.